Is the Solo-K Best for the Self-Employed Individual?

For the self-employed individual, there are various retirement plans that may be of interest. There is always the question: is the Solo-K best for the self-employed individual? For this blog, we are not going to be comparing different plans. What we will address are some key components to the Solo-K that you should certainly consider in your selection of the Solo-K over any other type of retirement plan.

Solo-K — Flexibility?

Is the Solo-K best for the self-employed individual? Consider flexibility. Do you want flexibility with your retirement plan? You have it with the Solo-K….you just need to elect it if you qualify for the plan as a self-employed individual. Investment flexibility…you have it. Not being tied to the same ole, same ole with your brokerage account…you have that, too. Would you like to invest as you see fit? You can. And, with a Solo-K plan, the ability to invest into both traditional and non-traditional assets has never been easier.

Traditional and Non-Traditional Assets?

What is the difference between traditional and non-traditional assets. Let’s keep it simple.

Traditional assets are securities your plan holds through a brokerage firm account for your plan. We know what they are…stocks, bonds and mutual funds.

Non-traditional assets can include, but are certainly not limited to, the following (and, folks, this is but just a sampling):

Hey, I just had a client who invested their Solo-K funds into music royalties. Eminem, no less. Folks, the potential assets that can be invested into by your plan is almost unlimited.

Is This Legal?

Yes, you are not limited to what your broker sells. In fact, the IRS makes it pretty easy….they don’t tell you what assets you can invest into, rather a very short list of what you cannot invest into.

So, with a correctly-structured Solo-K, you have ease of use, no hefty fees and flexibility!

Folks, We’ve Been Conditioned

Wall Street has done an excellent job conditioning people that their investment options are limited to stocks, bonds and mutual funds. But, it’s not what the IRS says. Consider the following IRS statement:

“In general, a plan sponsor or plan administrator of a qualified plan who acts in a fiduciary capacity is required, in investing plan assets, to exercise the judgment that a prudent investor would use in investing for his or her own retirement.”

And, while on the topic of being conditioned, brokerage firms have conditioned us into believing we have true diversification in our investing with them. But, do we? As an example, does your brokerage firm permit your Solo-K plan to invest into rental real estate property? Didn’t think so…advantage Solo-K.

Can I Open a Solo-K at a Bank?

Of course! Many individuals will open their Solo-K account at a local bank. You have the freedom and flexibility as Trustee of your plan to open the account at any financial institution that will open the account…including a bank.

Advantages of opening the Solo-K at a banking institution is the relative ease and convenience. There can be additional transactional benefits of opening the account at a bank.

Can I Open the Solo-K at a Brokerage Firm?

Yes, but not all brokerage firms will open the accounts. A 401(k) Trustee should always consider a brokerage firm as there are no establishment costs. More importantly, as Trustee of the plan, opening the account at a brokerage firm will also permit the plan to invest into traditional assets such as stocks, bonds and mutual funds.

PGI has working relationships with Schwab, Fidelity, TD Ameritrade and E-Trade. No cost to the client, unless you purchase financial products through any of these firms.

And, yes, you are provided a plan checkbook, can wire funds, and otherwise invest funds on behalf of the plan as you see fit (and, of course, complying with IRS regulations). None of these companies can tell you how you can invest your funds, nor do they otherwise control your plan and the plan’s operation. You have full control of the plan being the designated Trustee.

So, is the Solo-K best for the self-employed individual? You might think so if freedom, flexibility and the ability to invest as you see fit is important to you. This is the time when you can have true diversification of your retirement plan and invest as you see fit. Most people who participate in an employer’s 401(k) never have the potential benefits provided to them….you have it as the self-employed individual. As the business owner of your business, you have this freedom as the legal Trustee of your own plan….you just need to choose to have this benefit.

As always, the information provided is intended to educate. It is not intended, nor should it be interpreted, as any form of tax, legal, financial or investment advice. You must always consult with your respective professional in all such matters.